Improved Video Library.
Improved visuals and descriptions.
Users can now sort movies and TV Shows in the video library by Title or (Download) Date.
TV shows can now be grouped by Series .
Group video and game trailers .
Art associated with personal video files on a portable device will now be displayed.
Easier to use media areas and improved metadata .
Improved source selection for video, picture, and music libraries, making it easier to switch between console/digital camera, computer, portable device or disc.
New "Suggested Items" link for downloaded movies.
Feature Details:

Media - All

Added more user friendly text for various error related messages
Added Shortcut keys from Remote Control: Pressing Play on a Video/Song/Picture will immediately start playback of that item from the list (pressing Start from gamepad does the same thing)
Added support for Album/Video artwork larger than 500kb
Added support to enumerate metadata in the background and not just when selected by the user
Added support to make sort options sticky across console reboots
Added support to show all available Media Sharing Servers on the local network and allow automatic re-affiliation
Automatically delete older versions of Optional Media Update package when new ones are downloaded
Improved consistency in storage naming across all areas
Improved performance for displaying Album Art when connected to remote sources
Improved text messaging when connection to PC is lost when streaming Music/Photo or videos
Improve boot speed with media when console startup is to boot-to-dash

Media - Music

Added support for CD Playback from music area in Xbox 360 Guide area
Added support for listing multiple computer sources in Xbox Guide music sources
Added support for Y button to toggle full screen on and off for music visualizer
Disable 'play all' button when folders only contains playlists (with no audio files)
Disable Y button when no list items selected in Music player
Improved device support for new iPods (classic and 3rd gen Nano) - iPhone and iPod touch are not supported
Improved error handling for mixed encoded playlists (aac,mp3,wma)
Improved handling for MTP Music devices with >200k entries
Improved handling of game background music after playing videos in Dashboard
Improved handling of music playback over games (if music source terminates or has errors, background music returns to game background)
Improved performance for "Play All" with attached MTP devices
Improved performance of music enumeration via Guide
Improved robustness when playing back HFS+ formatted iPods
Improved support for returning to game background audio when user's music player session terminates
Improved support for scrolling song lists while listening to music during game playback
Improved support when ejecting game disc while selecting music source through Guide

Media - Pics

Added support to display PNG files when streamed from Windows Media Player 11 on Vista
Improved enumeration for PTP cameras including Cannon Powershot SD 630 and Apple Iphone
Improved playback performance of "Play All" when PC source has 1000s of photos and subdirectories
Support Folder view of Photos from MTP Portable Devices
Media - Video
Added 2 line support for entries in the Video Area of the Media Blade
Added ability to recognize Colorspace attribute for Video Marketplace Content
Added fade in transition for start of video playback
Added full screen buffering animation for streaming videos from Xbox LIVE
Added Suggestions scene for Video Library area in Media blade of the Dashboard
Added support for 16x Fast-forward/Rewind
Added support for AC3 embedded audio (see video faq for full information)
Added support for enumeration of video files from Zune 2.0 devices
Added support for Left Shoulder button on controller to chapter skip backward
Added support for Left Trigger button on controller to rewind
Added support for moving past the point user has viewed when doing progressive downloads of Video Marketplace videos
Added support for MP3 embedded audio (see video faq for full information)
Added support for Mpeg-4 part 2 video files in AVI containers
Added support for Right Shoulder button on controller to chapter skip forward
Added support for Right Trigger button on controller to fast forward
Added support for Zune Podcast video playback from Zune device
Added support to display metadata and thumbnails embedded in video files
Added support to enumerate .divx video files
Added support to group TV shows by Series in Video Library of Media Blade
Added support to group Video and Game Trailers into same area of Video Library of Media Blade
Added support to sort Movies or TV Shows by Title or Download date in Video Library of Media Blade
Added top level support to show expired or soon to expire information for purchased movies from Video Marketplace in Media Blade
Improve support for "Play Now" calculations with ISP that boost download for the first 20MB of a file
Improved accuracy of bookmark positions when video player abnormally ends
Improved accuracy of download progress bar after chapter skipping operations
Improved auto resizing experience for small (under 100x100) video files
Improved Bookmark / Resume experience with 60fps Interlaced WMV videos
Improved bookmark support while progressively downloading videos from Marketplace
Improved calculations for "Play Now" for Video Marketplace downloads
Improved deinterlacer support for video playback
Improved enumeration speed for user-generated video content in Media Blade
Improved error message support when playing back video files without valid licenses
Improved error message support when pulling USB drive while playing back video files
Improved handling for USB memory stick removal while on Video device selection list in Media blade
Improved handling of video playback when transitioning from 4x FF to Play with MP4 video files
Improved handling of WMV bookmarks when rewinding and shutting down video player
Improved info pane timer when playing back DRM's WMV content from Windows Media Player 11 from Windows PC
Improved message support for progressive video playback
Improved overall UI, content descriptions and navigation of Video Library of Media Blade
Improved performance during Fast Forward to Playback transition when playing back MP4 content
Improved performance for buffering and playback of streaming videos from Xbox LIVE
Improved performance for low bandwidth streaming of MP4 videos from Zune PC software v1.0
Improved performance of skip forward/backward with WMV video files
Improved performance of trick modes when streaming videos from Zune PC client
Improved performance of WMV playback for WMV7 & WMV8 encoded video files
Improved playback experience after extended pauses of video files from Marketplace
Improved playback experience when resuming from a stopped/paused state
Improved playback performance for h264 720p .MOV files
Improved playback performance with 1920x1080 MP4 files
Improved playback performance with 5Mb h264 encoded video files
Improved playback performance with 60fps 720x480 MP4 content
Improved playback performance with h264 files in .m4v containers
Improved quality for upscaled user videos when played back full screen
Improved quality of MP4 decoder: Global Motion Compensation and VMX optimizations
Improved quality of MP4 decoder: improved Interlaced Support
Improved quality of MP4 decoder: Out of order frame output, bidirectional motion vector handling, etc.
Improved quality with non-square pixel video files
Improved responsiveness of trick mode controls for video playback
Improved robustness during chapter skipping of h264 video files
Improved robustness for streaming problematic video files from Zune PC Software 1.0 or Windows Media Player 11
Improved robustness of video player when playback catches up to downloads in progressive playback scenarios
Improved robustness of video streaming when network congestion / stalls occur
Improved robustness when closing video player after attempting to play a video file that would not open
Improved robustness when entering and exiting video playback on a portable device repeatedly
Improved robustness when exiting video files encoded in h264 and playing back from attached USB HDD
Improved robustness when playing back Mp4 video with consecutive bad aac samples encoded into it
Improved robustness when shutting down console during h264 video playback
Improved robustness when trying to play a video recently moved from MU to HDD or vice versa
Improved robustness with video player when exiting player via Xbox Guide button -> Y
Improved support for AAC-LC 2 channel encoded audio in MP4 video files
Improved support for chapter skipping during progressive downloads of Marketplace Video content
Improved support for MP4 video files with discontinuous time stamps encoded in
Improved support for MP4 video playback from burned optical dvd-r's
Improved support for resuming downloaded videos after reaching end of an uncompleted download
Improved support for resuming partially downloaded videos from Marketplace
Improved support for using Big Button controller during video playback
Improved support for Video bookmarks when playing MP4 videos from USB portable hard drives
Improved sync of video display and info pane display when rewinding
Improved text for Windows Media Center setup instructions
Improved Trick mode support when streaming videos with AAC embedded audio
Improved video performance for 60fps interlaced WMV videos
Improved Video performance with 15Mbs 1080i 24fps WMV video files
Improved video playback for Fast-forward and immediate exit usage with h264 video files
Improved video playback of MP4 content from Zune PC Software v1.0
Improved video playback when source content has incorrect sync samples encoded
Improved video quality for SD Composite AV pack displays of the on-screen display for video controls
Improved video support for chapter skipping of MP4 videos
Improved Videotrick mode support with 24fps 1080i WMV video files
Improved visual display of WMV video files while rewinding
Improved WMV Playback performance for 60fps and 1080i 30fps videos
Improved WMV7 performance with VLC encoded content
Removed occasional purple flickers in video playback when transitioning between FF and RW
Removed potential 9 second delay when rewinding WMV video files

System

Added fade out transition when powering down console
Added fade out transition when launching games
Added support for browsing XNA games within the Games blade
Added support for video playback from UDFS formatted USB devices
Added support for XNA Game Studio Express V.2
Added support to connect to Apple Extreme routers in 802.11a/n mode
Added support to pause background downloads when streaming full screen videos or ads
Added support to retrieve game thumbnail directly from XNA game package
Added system wide support for Simplified Chinese language
Added text to explain flashing LED in the Ring of Light during background download low power mode
Addressed rare case where game disc would spin in the DVD drive while playing HD-DVD Movie in external HD-DVD drive
Disable Optical audio output when in low power background download mode
DVD player no longer converts to YCbCr709 when output is over HDMI
Improved auto sign-in to Xbox LIVE with Xbox 360 Wireless Adapter
Improved clock accuracy for S/PDIF optical streams
Improved compatibility with NEC WR8400N WiFi routers
Improved download speeds when in low power background download mode
Improved DVD Tray State notifications immediately after application of System Update
Improved Forced Aspect Ratio Changes via HDMI output (including DVI)
Improved handling when ejecting game disc during game start
Improved handling when removing MU after sending Arcade game recommendation to friend
Improved localization text for Wifi setup in German
Improved performance for Game Titles to reboot in backcompat scenarios
Improved performance of Xbox Guide during Messenger signin
Improved robustness when ejecting game disc when prompted for game title update
Improved robustness when inserting two MU's at the same time on the device selector scene
Improved support for 3rd Party Controllers
Improved support for Buffalo WiFi routers
Improved support for Creston AV receivers with HDMI
Improved support for JPN Corega CG-BARFX network router
Improved support for signing into Xbox LIVE with Big Button Controller
Improved support for starting console with Big Button Controller when console is charging attached Wireless Controllers
Improved Xbox guide performance ~2x
Removed "Windows-based PC" from Computers area in Systems blade
Removed option to "Turn off Controller" when using Big Button Controller
Resync the Ring of Light pattern to the boot audio/animation
Updated copyright dates for 2007